Foreign Currency

An entity will primarily generate and expend cash in one primary economic environment. According to IAS 21, the Effects of Changes in Foreign Exchange Rates, the correct term for the currency of this primary economic environment is the

• Presentation currency

• Functional currency

• Reporting currency

• Foreign currency

According to IAS 21, The Effects of Changes in Foreign Exchange Rates, at which rate should an entity's non-current assets be translated when its functional currency figures are being translated into different presentation currency?

• The historical rate

• The closing rate

• The average rate

• The spot exchange rate

According to IAS 21, The Effects of Changes in Foreign Exchange Rates, exchange differences should be recognized either in profit or loss or in other comprehensive income. Are the following statements about the recognition of exchange differences in respect of foreign currency transaction reported in an entity's functional currency TRUE or FALSE? 1. An exchange difference on the settlement of a monetary item should be recognized in profit or loss. 2. Any exchange difference on the translation of a monetary item at a rate different to that used at initial recognition should be recognized in other comprehensive income.

• False False

• False True

• True False

• True True

On October 1, 2009, Mild Co., purchased machinery from a foreign company with payment due on April 1, 2010. If Mild's 2009 operating income included no foreign currency transaction gain or loss, the transaction could have been

• Resulted in an extraordinary gain.

• Been denominated in Philippine pesos.

• Cause a foreign currency transaction gain to be reported as a contra account against machinery.

• Caused a foreign currency translation gain to be reported in other comprehensive income.

On October 1, 2009, Velec Co. contracted to purchase foreign goods requiring payment in local current units (LCU) one month after the receipt of the goods at Velec's factory. Title to the goods passed on December 15, 2009. The goods were still in transit on December 31, 2009. Exchange rates were one peso to 22 LCUs, 20 LCUs, and 21 LCUs on October 1, December 15, and December 31, 2009, respectively. Velec should account for the exchange rate fluctuation in 2009 as

• An ordinary loss included in net income.

• An ordinary gain included in net income.

• An extraordinary gain.

• An extraordinary loss.

In preparing consolidated financial statements of a Philippine parent company with a foreign subsidiary, the foreign subsidiary's functional currency is the currency

• In which the subsidiary maintains its accounting records.

• Of the country in which the subsidiary is located.

• Of the country in which the parent is located.

• Of the environment in which the subsidiary primarily generates and expends cash.

A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted average exchange rate for the current year is the appropriate exchange rate for translating:
Wages Expenses | Sales to Customer

• Yes No

• Yes Yes

• No Yes

• No No

The basic purpose of derivative financial instrument is to manage some kind of risk such as all of the following EXCEPT

• Stock price movements.

• Interest rate variations.

• Currency fluctuations.

• Uncollectibility of accounts receivable.

Derivatives are financial instruments that derive their value from changes in a benchmark based on any of the following EXCEPT

• Stock prices

• Mortgage and currency rates

• Commodity prices

• Discounts on accounts receivable

Derivative instruments are financial instruments or other contracts that must contain

• One or more underlying’s, or one or more notional amounts.

• No initial net investment or smaller net investment than required for similar response contracts.

• Terms that do not require or permit net settlement or delivery of an asset.

• All of the above